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Stock market crash: Why I would avoid this retail stock like the plague

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Card Factory (LSE:CARD) is a retailer that suffered in the Covid-19-related lockdowns and market crash. So, is it now a great opportunity or a risk?

Market crash victim

Card Factory is a leading specialist retailer of greeting cards, gift dressings, and party products in the UK. CARD has over 1,000 retail outlets in high streets across the UK. Unfortunately, it relies heavily on high street footfall. In March, CARD saw all of its stores closed, but at the time of writing over 95% of stores had reopened.

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When the market crashed, CARD lost nearly 70% of its share price value. Its share price plummeted from over 90p per share, to its lowest point of 28p. At the time of writing shares can be picked up at a very cheap 38p.

The closure of all Card Factory’s retail outlets will have been a bitter pill to swallow. The ever-changing face of retail as online competitors continue to gain market share has hampered CARD in recent times. One of these competitors is Moonpig. It is common knowledge that technology has meant shopping habits have evolved and high streets have suffered.

Trading update

A trading update released at the end of July confirmed the impact of Covid-19 and the market crash on CARD’s operations. The update also confirmed a phased reopening of stores in line with new Covid-19 secure guidelines. CARD said its sales exceeded initial expectations with like-for-like sales since reopening down 21.6%. This is compared to an anticipated 50% reduction in the first month of reopening. In-store transactions fell, reflecting footfall levels, but average spend had increased by 24.9%.

On 2 July, CARD launched its new website. Online sales were up nearly 70% for the current financial year to 19 July 2020. Like-for-like sales were up close to 121% during the period of store closures from 23 March to 14 June 2020.

CARD had to take steps to save cash and to ensure debt levels weren’t getting out of control during the market crash. With its final year dividend already cancelled, it also saved money from deferrals on rent and VAT as well as agreements with suppliers. CARD also utilised the government’s Coronavirus Job Retention scheme. Coupled with CARD’s recent woes, these signs do not bode well.

Avoid or risk losing money

My overall consensus regarding Card Factory is that it is a poster child for the retail sector struggling due to the market crash. Sure, it has had some positive results in its latest trading report but online sales make up a very small part of its sales overall.

What worries me is the fact that the company has lots of debt, and it relies too much on footfall in a technology driven world with many slicker competitors out there. When you add to this that it has been performing poorly over the past few years too, I am put off investing any of my hard earned money. I am looking at alternative stocks out there during this market crash.

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Jabran Khan has no position in any shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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